Take Five: WMC’s Manley rips Obama’s new carbon regulations

Proposed federal rules that would administratively establish a cap-and-trade plan to limit carbon emissions have drawn the ire of Wisconsin Manufacturers and Commerce, which predicts devastating impacts on Wisconsin’s economy, particularly manufacturing, if the rules become final.

Scott Manley, vice president of government relations for WMC, blasted the rules announced Monday by Environmental Protection Agency Administrator Gina McCarthy.  In what is considered the centerpiece of President Obama’s climate-change agenda, the rules seek to limit carbon emissions in hundreds of fossil fuel-burning plants across the country.

The EPA is proposing that power plants cut U.S. carbon dioxide emissions by 30% by 2030, from the levels of 25 years earlier. States and power companies reportedly will have some flexibility in reaching the target, but the plan is still expected to face political opposition, particularly in coal-burning states like Wisconsin.

There are competing cost-benefit analyses of the plan. The EPA pegs the cost at between $7.3 billion and $8.8 billion per year, but also contends the benefits would dwarf the cost. The agency estimates that health care and related savings from cutting sulfur dioxide would range from $55 billon to $93 billion per year.

In contrast, a report by the U.S. Chamber of Commerce puts the annual cost at $50 billion and contends the EPA plan would cost 224,000 jobs each year.

In this Take Five interview, Manley said the EPA rules, which could go into effect next year following a public comment period, would cost thousands of jobs in Wisconsin.  Here are some excerpts from our interview.

IB: In your estimation, how would this carbon dioxide emission-reduction program impact Wisconsin?

Manley: It’s difficult, as the rule was just rolled out, to project with exact specificity what it’s going to mean for Wisconsin. I’ve seen a number of studies, one of which said the five-state region in the Midwest, where Wisconsin is located, is expected to lose 31,700 jobs per year [U.S. Chamber of Commerce], and another that said in the year 2023, Wisconsin very specifically is projected to lose 11,702 jobs just in that year alone [Heritage Foundation]. Among Midwest states, that would make us the hardest hit on a per capita basis. We’re very concerned about what this rule is going to do to our economy, in particular manufacturing jobs because those are the types of jobs that are most likely to be adversely affected by the EPA’s proposed rule.

IB: My understanding is there really isn’t a technology on the market for the carbon capture that will be required to meet a mandate like this. What can you tell me about where that stands?

Manley: One of the ways the EPA has said states can reduce their emission profile is to utilize carbon capture and storage technology. The problem with that is it’s never been successfully implemented at any existing power plant in the United States, and the regulations announced today apply to existing power plants.

The other problem with carbon capture and storage technology is the storage technology involves injecting the carbon dioxide gas underground, deep underground into wells. As you might imagine, that requires a very specific geology that allows you to pump that gas down into the rock and keep it there. We do not have any of those kinds of geological formations in Wisconsin, so the idea that power plants in our state would somehow find a way to capture our carbon emissions … we don’t have anywhere to put it. We would have to construct pipelines to other states, assuming that’s even feasible, to send our carbon dioxide gas.

IB: There is another issue that if you’re going to cap and trade, you have to have someone to trade with. Without carbon capture technology, would there be anyone to trade with?

Manley: The whole theory behind cap-and-trade as an economic tool assumes that states are able to reduce their emissions beyond what the EPA would require, so those states would have surplus, or emissions credits, that they could sell to states like Wisconsin, for example. A state like Wisconsin could just purchase their way to compliance through credits. The problem is that it’s unclear who is going to generate credits because, as I said, nobody has been able to successfully deploy carbon capture and storage technology at existing plants.

What in reality is ultimately going to become the best compliance tactic for this type of a rule, if it becomes final, is you’re going to have to de-power coal-fired power plants, and just shut them down, and probably have a massive fuel switch to natural gas or nuclear energy in order to provide the large levels of base load electric generation that would be needed to make up for the loss of coal-fired power plants.

IB: One of the reasons cited for Wisconsin’s vulnerability here is that it doesn’t generate nearly as much of its electricity from nuclear power compared to Illinois and other states. Are you talking winners and losers here?

Manley: That’s correct. It fluctuates based on market prices for fuel and coal and natural gas. Just a few years ago, we got about two-thirds of our electricity from coal, the type of energy that this specific rule targets. We’ve invested billions of dollars in coal-fired generation in our state, so we get the double hit because, number one, we’ve got the type of jobs that are most significantly affected, and those are manufacturing jobs.

Number two, we’ve got a disproportionate amount of coal-fired generation. Think of it this way: We typically get 50% to 60% of our electricity from coal. A state like California gets less than 1% of its electricity from coal. When you have the EPA coming out with a rule that targets coal-fired power plants, the financial and job impact is very different in a state like California than it is in a state like Wisconsin.

So you end up with winners and losers under this type of a rule. Unfortunately, with what EPA has proposed, Wisconsin ends up at a significant competitive disadvantage relative to a lot of other states in this country.

IB: Would one alternative be to convert the coal-fired plants to natural gas-powered plants?

Manley: That’s not always technically feasible or even easy to do, but it’s certainly very costly.

IB: How expensive would it be to build more natural gas-fueled plants from scratch?

Manley: Certainly fuel switching to natural gas is part of what EPA is hoping to encourage states to do. There are a couple of problems with that. Number one, in Wisconsin, we have very recently invested billions of dollars in new coal-fired generation or upgraded coal-fired generation. When we look at the coal-fired plants in Pleasant Prairie, Wis., in Oak Creek, Wis., and in Weston, Wis., and the rate payers in our state have invested billions in those, and to have EPA come out with a rule that basically wipes out that investment and says, ‘Okay, you can start all over again with natural gas,’ from an economic standpoint, that just makes absolutely no sense, especially if we’re trying to be good stewards of electric rate payer dollars.

The other problem with it is that if we have the massive-scale fuel switch from coal to natural gas that I think the EPA is hoping will happen as a result of this rule, we’re going to see demand for natural gas increase substantially. Along with an increased demand will come an increased price, and that’s just for the gas itself. Many states, Wisconsin included, simply do not have the infrastructure in place to accommodate the huge volume of natural gas that would be required to be pumped into our state in order to fuel these power plants. We’d be looking at expanding in significant fashion our pipeline infrastructure to accommodate an enormous fuel switch. Those pipelines are very difficult to get sited because they necessarily end up having to run through private property, and people aren’t always real eager to have a pipeline running through their yard.

But they are also incredibly expensive because you have to construct them and bury them. People need to really recognize the many facets of how this rule will drive costs, and those costs ultimately become reflected in higher energy prices, and those higher energy prices end up working against manufacturing jobs because manufacturers rely upon affordable and reliable energy to remain viable.



IB: From where you stand, is there any silver lining in this?

Manley: I don’t see a silver lining for Wisconsin. I saw a study that the U.S. Chamber of Commerce recently put out. In the area where Wisconsin is located from a geographic standpoint for the generation and distribution of electricity, I can’t remember how many states it is, but we’re in this regional distribution network and they anticipate costs are going to go up $3.3 billion per year, just in our Midwest Region. That’s 33 times higher than how this rule is anticipated to cost California. If we’re looking at costs in our region that are 33 times higher than California, who we compete with for manufacturing jobs and other jobs, including agriculture — and you use a lot of electricity on farms — that just puts us at a really bad competitive disadvantage.

IB: What do you think the state, the Walker administration, will do to block this?

Manley: We’re likely to see a significant amount of litigation involving this rule, number one because there is so much at stake for Midwest manufacturing states. When you look at the concentration of manufacturing in this country, it’s primarily in the Midwest, and when you look at the concentration of coal-fired generation, it’s primarily in the Midwest. So I don’t think Wisconsin will be alone in wanting to challenge the legality of this rule. Keep in mind that it’s a rule that in many ways implements or seeks to implement what Congress has already rejected with respect to cap-and-trade regulations.

IB: Since this is being done by administrative order, not via legislation, what’s the legality of that? Will some of the legal challenges be based on that?

Manley: That’s a big part of it. You certainly have a strong case to be made that if it would have required an act of Congress to implement these types of carbon regulations and a cap-and-trade market for carbon, then how in the world does an executive agency like the EPA invent their authority to do it? That’s part of it.

Another part of it is that when you look at the cascading impacts of the Clean Air Act itself and the manner in which the Clean Air Act, and specifically in this case the new first-performance standards for existing facilities, when you look at how that law is structured and what the EPA is proposing to do, there are some very strong legal arguments that what they are proposing is far outside the bounds of what the Clean Air Act gives them by way of legal authority.

IB: It would appear the Obama administration expects legal challenges, even welcomes them, in order to see how far its authority goes.

Manley: They definitely expect a legal challenge. Anytime you’re talking about promulgating a rule that’s expected to result in hundreds of thousands of lost jobs per year and trillions of dollars of reduced GDP in our country, they have to anticipate that. But at the same time, unless a court decides to issue a stay of the rule during the pendency of the litigation, then the rule continues to move forward and takes effect, even while they are sorting it out in the courts.

This rule envisions a very fast time frame. Here we are in June of 2014, and states including Wisconsin will owe to the EPA in 2016 a detailed plan explaining how we intend to achieve the carbon dioxide emission reductions that they set forth for our state. So this is going to move very fast, absent judicial intervention.

IB: The EPA contends the benefits far outweigh the costs.

Manley: Well, I think they are fudging the numbers there. The EPA has always had a very interesting way of how they assess costs and how they assess benefits, but the reality is from a public health standpoint, the EPA sets standards for things like soot and smog and other air pollutants that are intended to be protective of public health and include a margin of safety for people in sensitive groups.

In a state like Wisconsin, for example, we’re meeting those soot standards in every one of our 72 counties, and in 71 of the 72 counties we are meeting the smog standards. So if this is about public health, our air quality is already at the level that EPA says is protective of public health. This doesn’t have anything to do with public health. This is about the EPA trying to implement the president’s vision of energy policy that he could not get enacted through the United States Congress. It’s going to be incredibly, incredibly expensive.

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